By Koketso Mano
Headline inflation ticked up to 3.1% y/y in March from 3.0% in February. The print was in line with our forecast and the market's expectation. Monthly pressure was 0.6%, mainly due to core inflation.
Core inflation was 3.2%, up from 3.0% previously, with monthly pressure of 0.8%. Services inflation recorded 0.9% m/m, and 4.2% y/y, mainly driven by housing, education, restaurants and hotels, and there was already some pressure on public transport. Core goods inflation was 0.6% m/m and 1.0% y/y.
Average fuel prices increased by 1.2%% m/m and were 8.7% lower than in March last year.
Food and non-alcoholic beverages (NAB) inflation slowed to 3.6% y/y from 3.7% y/y in February. There was no monthly pressure as higher vegetable and NAB costs were mitigated by meat deflation.
Outlook
Headline inflation is set to increase in April, to around 3.8% y/y, with monthly pressure of 1.0%, driven by the fuel price surge as well as further passthrough to public transport costs. Meanwhile, the momentum on food may continue to reflect persistent meat industry pressures but could be dampened by softer cereal and vegetable costs.
Energy inflation remains the most prominent upside risk in the near term, with the Middle East conflict pushing up the cost of petroleum-related products while Eskom's latest electricity tariff increases filter through to the economy. Government's intervention through the R3 per litre general fuel levy reduction partially cushioned the fuel price increase in April and we assume similar support will be extended for one more month. Even with this, month-to-date indications are for another R2 per litre and R7 per litre increase in petrol and diesel prices in May, respectively. Understandably, limited fiscal buffers narrow the scope for further or prolonged relief, leaving inflation exposed to fuel price pressures. Furthermore, we should experience a slower pace of disinflation following this shock, as authorities seek to recoup foregone levies and suppliers attempt to recoup compressed margins. Ultimately, while we may not see a speedy passthrough of higher input costs to consumers, second-round pressures mount the longer the cost of energy remains elevated.
The April inflation print is scheduled for release on 20 May. Major periodical surveys conducted in April include health insurance (6.17%) as well as funeral expenses and policies (1.48%).
